Not feeling hammered — Contractors report growing optimism

There are finally some hard signs that the nonresidential construction industry is coming out of the largest decline in decades, though the impact of the recent federal shutdown and a dwindling pool of available construction workers could curb some of that optimism.

The latest Associated Builders and Contractors’ Construction Confidence Index (CCI) finds optimism was up among contractors nationwide during the first half of 2013.

“As the economic recovery enters its fifth year, nonresidential construction prospects continue to brighten,” said ABC chief economist Anirban Basu. “A variety of industries ranging from professional and health services to leisure and retail continue to add jobs, and vacancy rates in many product categories throughout the country are falling, creating new opportunities for developers and their contractors.”

The CCI reflects three aspects of the U.S. nonresidential construction industry: sales prospects, profit margins and staffing levels. CCI readings above 50 indicate growth, while readings below 50 are unfavorable. For the first half of this year, CCI indices for the first half of 2013 compared to the second half of 2012 were:

» Sales expectations rose from 62.3 to 63

» Profit margin expectations slipped from 55.9 to 55.3

» Staffing level expectations rose from 59.6 to 60.

“Several events have impacted the gradual increase in confidence this year, including Detroit’s bankruptcy, rising interest rates, the nation moving closer to another debt ceiling debacle and softening in the housing market.” Basu said. “However, certain aspects of the economic environment have improved, including the availability of capital and the steady healing of state and local government budgets.

Optimism is also up when looking at how busy contractors are today. The ABC’s Construction Backlog Indicator (CBI) rose 3.9 percent during the second quarter of 2013 and now stands at 8.2 months, up from 7.9 months the previous quarter. Construction backlog is up 6.6 percent compared to the same time last year. CBI reflects the amount of commercial and industrial construction work under contract, but not yet completed.

This increased backlog was seen in the South as well as the Northeast and West. However, the South’s backlog growth rate is rather tepid, raising more questions.

“Perhaps the biggest surprise in the data is that backlog in the South has not increased more aggressively,” said Basu. “Most macroeconomic data indicate the South and the West are the fastest expanding regions of the United States, which would seem to suggest a higher backlog.

Perhaps the best news is contractors are hiring and construction spending is up. Construction employment rose by 20,000 in September and the industry’s unemployment rate fell to a six-year low of 8.5 percent, while construction spending increased for the fifth consecutive month in August, according to an analysis of new government data by the Associated General Contractors of America (AGC).

Still, AGC officials say the impact of the federal shutdown that ended last month is yet to be determined.

Association officials cautioned that the data does not address any potential impacts from the recent federal government shutdown.

Ken Simonson, the AGC’s chief economist said “the shutdown likely disrupted a wide variety of projects and may have caused private investors and developers to delay decisions about new projects or plant expansions. As a result, future spending and hiring gains may be weaker.”

Construction employment totaled 5.826 million in September, a gain of 20,000 from the August tally, which was revised up by 8,000 from the Labor Department’s initial estimate. The September figure is 3.4 percent higher than in September 2012, while aggregate weekly hours of all construction employees rose 4.2 percent over the year, indicating that companies are adding to existing workers’ hours in addition to hiring new employees. Employment climbed for the month and year in both residential and nonresidential construction.

However, even here some caution is advised. With hiring up, firms might find it harder and harder to find construction workers who need a job.

Total construction spending, as reported by the Census Bureau, climbed 0.6 percent in August from an upwardly revised July figure and 7.1 percent from August 2012. Private residential spending led the way with a 1.2 percent increase for the month and a 19 percent jump year-over-year. Private nonresidential spending eked out a 0.1 percent gain in August and a 4.3 percent rise over 12 months. Public spending rose 0.4 percent for the month but shrank 1.8 percent from a year earlier.